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Errors and Omissions Insurance

Updated August 22, 2020

What Is Errors and Omissions Insurance?

Errors and omissions (E&O) insurance is a type of professional liability insurance used by professionals and their firms to protect themselves, their companies, and their employees in the event of claims of negligent action or incorrect work.

The features of an E&O policy will vary based on the coverage amount, specific professional industry, and the size of the organization being covered. Individuals or firms with a history of litigation and/or professional disciplinary actions will present a greater underwriting risk, which will result in limited options and higher E&O insurance premiums. Typically, coverage includes legal costs as well as settlement amounts up to the limits spelled out in the insurance contract.

Who Uses E&O Insurance?

E&O insurance is commonly used by professionals who provide a service or advice, such as financial advisors, insurance agents, lawyers, or other professional consultants.  

While most commonly associated with the financial services industry, E&O insurance is also used by non-financial, professional businesses that also provide advice. Engineers, certain types of contractors, and even non-profit agencies benefit from having E&O coverage. Doctors, dentists and other medical professionals also carry E&O insurance, commonly referred to as malpractice insurance.

E&O Insurance Example 

Granite Cliff Securities is a broker-dealer registered to provide investment services, advice, and products. Granite Cliff purchases E&O insurance to cover its financial advisors. 

A client of the firm sues over investment losses. The arbitration panel rules in favor of Granite Cliff as the risks associated with the investment were thoroughly explained and understood by the client. However, the legal costs associated with the process were extremely high. Granite Cliff’s E&O policy pays a portion of the legal bills as spelled out in the policy.

What Is the Difference Between General Liability and E&O Insurance?

While both types of insurance fall under the business liability category, there are marked differences.

General liability protects the business from physical injury to people or property damage that occurs during day-to-day operations. E&O insurance covers claims of financial loss against the business due to negligent advice.

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At InvestingAnswers, all of our content is verified for accuracy by Rachel Siegel, CFA and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Errors and Omissions Insurance.
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Rachel Siegel, CFA
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Rachel Siegel, CFA is one of the nation's leading experts at ensuring the accuracy of financial and economic text.  Her prestigious background includes over 10 years of experience in creating professional financial certification exams and another 20 years of college-level teaching.

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